Zephram Corporation has a plant capacity of 200,000 units per month. Unit costs at capacity are: Current monthly sales are 190,000 units at $30.00 each. Q, Inc., has contacted Zephram Corporation about purchasing 2,000 units at $24.00 each. Current sales would not be affected by the one-time-only special order. What is Zephram's change in operating profits if the one-time-only special order is accepted?
A)$14,800 increase
B)$17,200 increase
C)$22,000 increase
D)$33,200 increase

Question

Zephram Corporation has a plant capacity of 200,000 units per month. Unit costs at capacity are:  Current monthly sales are 190,000 units at $30.00 each. Q, Inc., has contacted Zephram Corporation about purchasing 2,000 units at $24.00 each. Current sales would not be affected by the one-time-only special order. What is Zephram's change in operating profits if the one-time-only special order is accepted?
A)$14,800 increase 
B)$17,200 increase 
C)$22,000 increase 
D)$33,200 increase

Quizplus · Accepted Answer

To find the change in operating profits, we need to calculate the incremental revenue and incremental costs associated with the special order.

Incremental Revenue = Quantity x Price = 2,000 x $24.00 = $48,000
Incremental Costs = Unit Costs at Capacity = $11.00

Therefore, Incremental Profit = Incremental Revenue – Incremental Costs = $48,000 – ($11.00 x 2,000) = $26,000

So, by accepting the one-time-only special order, Zephram Corporation will increase its operating profit by $26,000. Therefore, the correct answer is A) $14,800 increase.

Zephram Corporation Has a Plant Capacity of 200,000 Units Per